High Mobile Data Pricing - They Can Until They Can't

It isn't news that mobile phone service is more expensive in Canada than it is in the larger and more competitive US market. This is true of both voice minutes and data volume. It get much worse when you roam, leading a small fraction of users taking aggressive measures. Unfortunately these measures are beyond the ken of the wider population and are therefore no threat to the Canadian operators. As to the reasoning behind these high wireless prices, and data in particular, it goes something like this:

Question: Why do they charge such ridiculously high prices?
Answer: Because they can.

Some time ago I put forward some thoughts on how wireless competition might evolve in Canada due to the granting of new spectrum licenses. It's still much too soon to know if my predictions are right or wrong, though I can speculate how pricing pressures may come to bear in the next couple of years.

First, while more wireless competition is coming, it isn't here quite yet. The new guys will be spending scarce capital to build their networks for some time before service can be turned up. When they do it is likely they will offer better pricing than the incumbents. However it is not certain. The reason is they want to maximize revenue while also inducing people to switch over to them. To best achieve this they will price data to undercut the incumbent, but not by too much. Lowering the price further will have to wait until the incumbents respond with their own price reductions, which, as I explain below, could take awhile.

Second, since the networks of the new entrants will be built out in stages, or in some cases will be regional according to their license terms, true pressure on the incumbents will only rise slowly. Should a new guy offer a great price in the early days the incumbents may not respond at all. They could simply advertise that their service is national and so commands a premium. It would even be true. The response to that by the new guys should be to form partnerships whereby they can offer seamless roaming among their combined coverage areas with no roaming charges. That may induce price reductions by the incumbents.

Here it's worthwhile to distinguish the data pricing for local, national roaming and international roaming. Saunder's article correctly threw the focus on international roaming charges. To bring those down we would have to see roaming agreements between our new wireless operators and those in the US, and that the US operators consent to low mutual roaming charges. Except they would feel no strong business inducement to offer better terms than in their arrangements with the Canadian incumbents from whom they earn the bulk of their roaming revenue. This could prove to be a barrier to lowering international data roaming prices.

Third, until the new guys are up and running and have a credibly ubiquitous service, and a track record of reliability, we should expect some shifts among the incumbents. In my previous article I mentioned how Bell Canada is decimating the ranks of their technology groups among other wholesale workforce reductions. This goes far beyond the needs of closing the sale of the company since it leaves the remnant weakly positioned to respond to emerging competition. As one acquaintance opined to me, he believes this means it's more likely that Bell Canada will be acquired (or merged, depending on your perspective) with Telus. That makes some sense. What this means is that until the new providers are fully operational there could be even less competition in the Canadian market. Prices could therefore rise further before falling, increasing the time until we see prices lower than today's.

A briefer summary of the scenario I've laid out here might be this rephrasing of the Q/A exchange I posited at the beginning of this article.

Question: How much longer will they charge such ridiculously high prices?
Answer: Until they can't.